1 Stock to Buy, 1 Stock to Short: Retail

Petsmart (PETM) and Abercrombie & Fitch (ANF) offer short and long opportunities

All day I scan the charts looking for technical patterns to trade. My Trending 123 Pattern Scan powered by Recognia is one useful tool I have to scan the markets quickly, and it is showing two technical events in these retail stocks for traders to take advantage of.

Bottom Triangle

Click to EnlargeAbercrombie & Fitch (NYSE:ANF), a teen clothing retailer, has developed a bottom triangle pattern in its stock over the past 32 days.

The price seems to have reached a bottom, showing signs of reversal as it has broken upward after a period of uncertainty or consolidation.

A bottom triangle shows two converging trendlines as prices reach lower highs and higher lows. Volume diminishes as the price swings back and forth between an increasingly narrow range reflecting uncertainty in the market direction. Then well before the triangle reaches its apex, the price breaks above the upper trendline with a noticeable increase in volume, confirming this bullish pattern as a reversal of the prior downtrend.

Recommendation: Buy ANF for a $51.50 – $52.75 target, with a $42.61 stop.

Downside Breakout

Click to EnlargePetsmart (NASDAQ:PETM), a pet supply retail company, has developed a downside breakout in its stock over the last 31 days.

The price broke downward out of a trading range suggesting we’re entering a new downtrend. The downside breakout represents a trading range in which prices move sideways between two parallel horizontal lines. It’s often a pause or congestion area within an existing trend though sometimes the breakout results in a reversal to the prior trend. Either way, a downside breakout through the lower support line signals an end to the consolidation period and the start of a downtrend.

Recommendation: Short PETM for a $56.50 – $57.50 target, with a $64.58 stop.

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